The ‘True’ Unemployment Rate? Try 12%

The official unemployment rate, currently at an unattractive 8.2%, understates the true weakness of the labor market, and regardless of how the government, markets and Main Street interpret the number, the weakness will, in the long run, make itself manifest.

This is the point John Shipman and I made this morning on the Markets Hub (see video below.)

The plain fact of the matter is fewer people, as a percentage of the population, are working today, and more importantly, there are more people who have left the labor force, possibly forever (whether or not it actually is forever is something being hotly contested; see: debate, structural vs. cyclical.)

That means fewer people to contribute to economic growth. Fewer people to pay taxes. Fewer people to help the U.S. earn its way out of a $15 trillion debt hole (if indeed anybody thinks that’s even possible.)

Consider for a moment what’s called the participation rate. This is simply a measure of the percentage of working-age Americans — who aren’t in jail or the military — “participating” in the work force; either people with a job or people looking for a job. It’s been falling since January 2007, when it stood at 66.4%. It slid to 65.5% in July 2009, as the recession was officially ending, and currently sits near a 30-year low at 63.8%.

If you applied the July 2009 number to today’s pool of potential workers, unemployment would be somewhere north of 10%. If you applied the 2007 number, unemployment would be 11.8%.

Comments (5 of 11)

There are other factors contributing the lower participation such as Baby Boomer generation is retiring and stagnant birth rate in America to replace the retirees in the work force. This not only causes a shortage of workers but more importantly a shortage of skilled, knowledgeable, and productive workers.

9:50 pm April 13, 2012

Joann wrote :

H - I know you would lose that bet. When the original figures were made don't you think they missed those same "work under the table" people then? They weren't counted then and they aren't now it all balances out for the numbers being a fair representation of the unemployment situation. Consider for a moment, those who are having to work 2 jobs to make up for the one good one that went over seas or out of business and the people who were working and have just gave up. I am going to bet the real number is more like 15 percent.

7:26 pm April 13, 2012

librtyship wrote :

The Russians had the greatest political propaganda machine on the planet, then they sold it to the Democrats!, now we have it!

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